Startups creating fewer jobs

For all the talk from Republicans and Democrats alike about startups saving the economy, research shows that small businesses are simply getting smaller.

The trend predates the 2008 financial meltdown, suggesting the economy might not be able to rely on new firms to churn out jobs as they have in the past.

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A typical startup opened its doors with an average of 7.6 employees in the 1990s — a figure that shrank to 6.8 in 2001 and 4.9 last year, according to a Labor Department study presented last week at the Federal Reserve’s conference on small business and entrepreneurship.

The Labor Department economists who authored the study, Eleanor Choi and James Spletzer, note that part of the drop-off comes from the declining share of manufacturing establishments. Also, technology continues to displace large numbers of workers.

It’s their belief that this phenomenon helps explain why the rate of annual job growth has been falling for decades.

The total number of jobs increased 4.5 percent a year from 1976 to 1979, 3.3 percent during the expansion in the 1980s, 3 percent in the 1990s — and a measly 1.6 percent in the 2000s.

The findings complement a similar study from the Ewing Marion Kauffman Foundation released in July.

“The heart of the problem is a pullback by newly created businesses, the economy’s most critical source of job creation, which are generating substantially fewer jobs,” wrote the foundation’s E.J. Reedy and Robert Litan.

The study also shows that almost 640,000 business establishments were born in 2001, a figure that fell to slightly more than 500,000 last year.

Policymakers have assumed that providing greater access to capital would enable more startups, but that strategy has not panned out.

The Obama administration launched the $30 billion Small Business Lending Fund but only disbursed $4.03 billion to banks before it shuttered in September.

Dennis Lockhart, president of Atlanta’s Federal Reserve Bank, said in a speech at the conference that commercial banks alone can’t really fix the problem.

A Census Bureau survey shows that personal savings were used as capital by 62 percent of startups; bank loans by just 19 percent; credit cards by 11 percent; and home-equity loans by 8 percent.

“Banks are not natural financial backers of a new business idea, based on the perceived merits of the idea or the assets generated by the business in the early period of operation,” Lockhart said. “This has been the reality for quite some time.”

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